Imagine suffering from a disability that makes it practically impossible to work. It’s likely you’d need any help that comes your way, including Supplemental Security Income (SSI) and Medicaid.
Now, imagine you manage to accrue $2,000 in a savings account through your efforts, or with help from friends and family. But then, once you reached that amount, you’re no longer eligible for SSI or Medicaid.
It doesn’t seem right that you can’t save for your future without jeopardizing your present. That’s exactly the problem ABLE accounts are designed to fix.
What are ABLE accounts?
The Achieving a Better Life Experience (ABLE) Act of 2014 was passed to allow disabled Americans to save for the future without risking their other federal benefits. It allowed states to establish savings accounts similar to 529 college savings funds. In fact, ABLE accounts are designated as 529As.
As with college savings plans, ABLE accounts can be established on behalf of beneficiaries. This structure is important in cases where a caretaker might not be around later, and someone with a disability needs to prepare for future costs.
While states are responsible for ABLE account administration, it’s important to note that you don’t have to be a resident of a state to take advantage of its program, just as with a college 529 plan. The National Down Syndrome Society follows state and federal ABLE-related legislation and has a list of states that offer 529A accounts.
Who can establish a 529A?
You can open an ABLE for yourself, your child, or another beneficiary, but in all cases, the person receiving the funds must meet the four eligibility requirements.
- Your condition must be a physical or mental impairment that is medically determinable. It must result in severe functional limitations, or you must be blind.
- The disability must be expected to last for at least 12 months or result in death (this includes certain cancers and brain disorders).
- Blindness or disability must have occurred before your 26th birthday.
- You must have a copy of a physician’s diagnosis of the condition. While you don’t need the diagnosis in hand to open the 529A, you still need to obtain it so that you can provide a copy to the IRS or the ABLE program upon request.
ABLE accounts are also subject to continued monitoring by tax year. You might need to recertify, depending on the impairment.
What are the limits of ABLE accounts?
How much you can contribute to an ABLE account is determined by the gift tax exclusion. For tax years 2013 to 2017, the exclusion is $14,000. However, Bloomberg BNA expects that amount to increase to $15,000 for the 2018 tax year.
Money to an ABLE account is contributed after-tax, but the funds grow tax-free as long as you use withdrawals for legitimate expenses (more on this below). As with 529 college savings plans, many states offer investment options so that the money in a 529A can grow faster. Realize, though, that you can’t roll regular 529 funds into a 529A.
It’s also important to note that once an ABLE account exceeds a value of $100,000, the SSI benefit received by the beneficiary is suspended until the 529A account value drops back below that amount. However, Medicaid eligibility is not impacted by the size of the ABLE account.
Finally, realize that upon a beneficiary’s death, other parties can have claims on the remaining money in a 529A. First, outstanding qualified disability claims are satisfied. Then, the beneficiary’s state of residence has the option claim money in the account for a Medicaid payback. A state can claim an amount that equals what it spent through its Medicaid program since the account’s establishment date. After those payments, any money left over goes to the beneficiary’s estate.
What are qualified disability expenses?
Withdrawals from ABLE accounts are tax-free, but they’re expected to be for the benefit of the eligible individual and cover “qualified disability expenses.” According to the Social Security Administration, the following items meet that designation:
- Housing (including utilities, insurance, and property taxes)
- Health care
- Prevention and wellness
- Assistive technology and related services
- Employment training and support
- Legal fees
- Financial management
- Administrative services
- Expenses related to ABLE account oversight and monitoring
- Basic living expenses
- Funeral and burial costs
Using the money for unqualified expenses can lead to the payment of income tax plus a 10 percent penalty, as with a 529 college savings account.
Benefit from an ABLE account
If you are caring for a disabled individual, or if you have a disability yourself, an ABLE account can be one way to save money for expenses and care.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|